Washington Highlights

February 6, 2015—The White House Feb. 2 released its fiscal year (FY) 2016 budget request, which includes $423 billion in Medicare reductions over 10 years, including $350 billion in provider cuts. The proposal also includes a $16 billion reduction in Medicare Indirect Medical Education (IME) payments over 10 years, seen in previous budget requests from the administration, and a new site neutral payment proposal to equalize Medicare rates for services provided in off-campus hospital outpatient departments (HOPD) and other provider settings, totaling $29.5 billion in savings over 10 ten years.

AAMC President and CEO Darrell G. Kirch, M.D., issued a Feb. 2 statement opposing the IME cuts and explaining that reductions in IME payments “will have a severe, negative impact on the very institutions that have historically led the way in health crises, most recently the fight against Ebola. In fact, those facilities designated as Ebola Treatment Centers would see dramatic cuts under the budget proposal. Medical schools and teaching hospitals depend on federal funding, not only to respond to public health emergencies, but also to provide critical services often not available elsewhere and to train the next generation of physicians and health professionals.”

The request reduces IME payments and provides authority for the Centers for Medicare and Medicaid Services (CMS) to set standards for teaching hospitals to encourage training of primary care residents and emphasize skills promoting high-value, high quality health care.

The administration also proposes to reduce reimbursement for services provided at off-campus HOPDs to rates based on either the physician fee schedule or the ambulatory surgical center payment system. The cuts would begin in FY 2017 and be phased in over four years. The Secretary of Health and Human Services would have authority to adjust payments in the event beneficiary access problems arise.

The president’s budget proposal includes a three-year phased-in reduction of the Medicare bad debt percentage. Starting in 2016, the percentage would be reduced from 65 percent to 25 percent. Providing an estimated savings of $31.1 billion over ten years, the proposal attempts to align the Medicare bad debt percentage with those for private payers.

Additionally, the president’s proposal would increase federal Medicaid spending by $7.7 billion over ten years. New expenditures include an extension through calendar year (CY) 2016 of the Medicaid primary care payment increase, which was established under the Affordable Care Act (ACA) and expired Dec. 31, 2014. While emergency room codes would be excluded from the payment increase to “better target” primary care, eligibility for the increased payment would include obstetricians and gynecologists and certain non-physician providers. The extension would cost an estimated $6.3 billion over ten years.

New Medicaid spending also includes a policy allowing states the option of 12-month continuous Medicaid eligibility for adults, a cost of $4.7 billion over ten years, and expanding to certain Medicaid populations full coverage without cost sharing for preventive and smoking cessation services, a cost of $754 million over 10 years.

Among the Medicaid reductions in the president’s plan is a rebasing of Medicaid disproportionate share hospital (DSH) payments for a savings of $3.3 billion over ten years. Currently, in FY 2025, Medicaid DSH allotments will revert to pre-ACA levels. The president’s budget proposal assumes that in FY 2025 and subsequent years, allotments will be based on the previous year’s levels.

The budget also assumes a four-year extension of the Children’s Health Insurance Program (CHIP). The $11.9 billion cost of extending the program through the end of FY 2019 would be fully offset by tobacco taxes.

The budget again proposes to create a competitive Targeted Support for Graduate Medical Education program at the Health Resources and Services Administration (HRSA). The budget proposes $400 million for the program in FY 2016 and a total of $5.3 billion over ten years. The president also proposes to more than double funding for the National Health Service Corps (NHSC) to a total of $810 million in FY 2016―$287 million in discretionary annual appropriations and $523 million in proposed mandatory funding [see related story].

Regarding the targeted investments to address physician workforce issues, Dr. Kirch stated, “these proposals would not make up for the harm done by cuts to teaching hospitals that could ultimately force institutions to reduce the number of residency positions and cut other vital services.”

Dr. Kirch added, “We appreciate the president’s vision to improve health care in this country, but remain concerned that the proposals in the administration’s budget will jeopardize patient care and exacerbate the doctor shortage. The AAMC looks forward to working with the administration and Congress to find ways to sufficiently support the complex patient care, groundbreaking medical research, and critical physician training taking place at the nation’s medical schools and teaching hospitals.”

Finally, the budget would also reform the Medicare physician payment system, repeal the sustainable growth rate (SGR) formula, and accelerate physician participation in “high-quality and efficient health care delivery systems.” However, the budget does not explain how the cost of SGR repeal would be offset.